Ditzler Company, a construction supply company, uses the allowance method of accounting for
uncollectible accounts receivable. Selected transactions completed by Ditzler Company are as
follows:Feb. 1 Sold merchandise on account to Ames Co., $8,000. The cost of the merchandise sold was
$4,500.
Mar. 15 Accepted a 60-day, 12% note for $8,000 from Ames Co. on account.
Apr. 9 Wrote off a $2,500 account from Dorset Co. as uncollectible.
21 Loaned $7,500 cash to Jill Klein, receiving a 90-day, 14% note.
May 14 Received the interest due from Ames Co. and a new 90-day, 14% note as a renewal of
the loan. (Record both the debit and the credit to the notes receivable account.)
June 13 Reinstated the account of Dorset Co., written off on April 9, and received $2,500 in full
payment.
July 20 Jill Klein dishonored her note.
Aug. 12 Received from Ames Co. the amount due on its note of May 14.
19 Received from Jill Klein the amount owed on the dishonored note, plus interest for 30
days at 15%, computed on the maturity value of the note.
Dec. 16 Accepted a 60-day, 12% note for $12,000 from Global Company on account.
31 It is estimated that 3% of the credit sales of $1,375,000 for the year ended December 31
will be uncollectible.Instructions
- Journalize the transactions.
- Journalize the adjusting entry to record the accrued interest on December 31 on the Global
Company note.
Solution
1.374 Chapter 8 Receivables
ILLUSTRATIVE ACCOUNTING APPLICATION PROBLEM
Feb. 1 Accounts Receivable—Ames Co. 8,000
Sales 8,000
1 Cost of Merchandise Sold 4,500
Merchandise Inventory 4,500
Mar. 15 Notes Receivable—Ames Co. 8,000
Accounts Receivable—Ames Co. 8,000
Apr. 9 Allowance for Doubtful Accounts 2,500
Accounts Receivable—Dorset Co. 2,500
21 Notes Receivable—Jill Klein 7,500
Cash 7,500
May 14 Notes Receivable—Ames Co. 8,000
Cash 160
Notes Receivable—Ames Co. 8,000
Interest Revenue 160
June 13 Accounts Receivable—Dorset Co. 2,500
Allowance for Doubtful Accounts 2,500
13 Cash 2,500
Accounts Receivable—Dorset Co. 2,500
July 20 Accounts Receivable—Jill Klein 7,762.50
Notes Receivable—Jill Klein 7,500.00
Interest Revenue 262.50
Aug. 12 Cash 8,280
Notes Receivable—Ames Co. 8,000
Interest Revenue 280